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The film opens with a man named Dr. Carver, the great-great-grandson of George Washington Carver, trying to generate a super Gnome Warrior, but it disintegrates. The scene then turns to Penny Proud, who is celebrating her 16th birthday in her hometown of Flagler Beach, Florida, and fails her driver's ed. She and her friends are excited to be a part of 15 Cent's (Sticky's cousin and parody of 50 Cent) dance group, Spare Change. When 15 Cent drives her home, Oscar Proud, her over-protective father, gets mad when he finds them kissing. After Oscar gives her the worst grounding of her life, and essentially forbids her from ever becoming an adult, practically making her a child forever, Penny wishes he wasn't her father, to which he states he wished he never had her as a daughter. This marks the culmination of their relationship as seen over the entire series.

Oscar creates an everlasting multiplying formula that was supposed to make his Proud Snacks tastier, but it instead causes the snack to expand and explode. As he is hauled away from his presentation, he proclaims that his formula has no expiration date. Dr. Carver, overhears Oscar's ranting. Carver has been trying to create an army of humanoidpeanut warriors, but has never gotten his formula stabilized and plots to get Oscar's. Disguising himself, Carver invites the Proud family to Legume Island. Trudy forces Oscar, Sugar Mama, and Penny to go in hopes they will re-bond. The family meets the inhabitants of the island, short peanut creatures called the Genomes.

Carver tries to negotiate obtaining the formula from Oscar by offering him $10 million. However, a G-nome named Wally convince Oscar not to. When Oscar refuses (who doesn't have the formula with him), Carver reveals the evil peanut clones of his family from DNA snatched from them while they were partying. Oscar runs away and tries explaining to his family, but they don't believe him. The clones get a mix-up when the real Penny comes with them back to the mainland to search for the formula; Penny's clone remains with the original family. Penny soon enjoy the free life which the clones allowed her, in spite of their bizarre personalities and Oscar clone becoming a celebrity, but quickly tires of it. She discovers that Cashew, a G-nome she befriended earlier on the island, had stowed away; he wanted to see what it was like to have a 'real family'. He also reveals to her the true nature of the clones.

At that moment, Wally leads the Prouds and the Penny clone on a perilous journey to the other side of the island, where he claims there is someone who can answer their questions. Along the way, the Penny clone proves to be the kind of daughter Oscar desires – obedient. When they meet the person Wally wanted them to meet, he turns out to be the real Dr. Carver. Dr. Carver explains that he created a clone of himself out of a peanut. Unfortunately, the clone went sizzling crisp in the sun one day and turned to evil. Donning a disguise of his original form, the clone took over the island and the G-nomes and began using Carver's peanut research for evil. Oscar realizes his formula is the key and tells the family he had left it in a necklace for Penny's birthday, which she opened back home. Her clone informs the other clones, who take the formula. Penny and Cashew gather her friends to go back to Lagoom Island and rescue the family. They steal 15 Cent's yacht to get there, but Penny accidentally sinks it.

Unfortunately, the Carver clone has already prepared to leave to take over the world with his Super G-nomes. The clones attack Penny and her friends and family, but she convinces the Oscar clone to help - by bribing him with hot dogs, which he had become obsessed with earlier - and he defeats the rest of the clones. Seeing the Carver clone making his getaway, the original Dr. Carver reveals a possible solution - a container of gas that could instantly turn solid peanuts into peanut butter. Penny takes the gas, boards the clone's airship, and battles him with help from Oscar, who para-sails up using one of Sugar Mama's giant underwear. Just as Penny is on the verge of releasing the gas, Dr. Carver offers her to join him and live a free life, without rules or responsibilities. However, Penny retorts that, even though they aren't the perfect one, her family is who she cares about and unleashes the gas, foiling the clone's plot and destroying the army. The clone, having only been hit slightly by the gas, turns back into a peanut and falls into the ocean. Oscar then gives Penny her birthday necklace, stating that he now knows she's mature enough that she is ready to make her own decisions, and finally accepts her for who she is, and they then make up on national TV. 15 Cent has Penny and her friends sing instead of acting as his back-up dancers and the crowd loves them. On Legume Island, the real Carver and his peanut people along with the Proud clones listen as a radio announcer says that Penny and her friends' song has been popular for five weeks (35 days) in a row.

In an extended ending, the scene fast-forwards three days later where Cashew is now part of the Proud Family, Penny is receiving her driver's license and, unfortunately, she helps Oscar by driving through town advertising his new drink Pork-Nut-o-Rade, but Puff drank it back home earlier, turning him into a large and rampaging monster. He chases them around the world up to China, until Suga Mama, who also drank the concoction, takes him home.